UPDATE 1-Greece adds century bond to debt options-source

* Such a bond would send strong signal to market
(Adds context and analyst quote)

NEW YORK/HONG KONG, Sept 30 (IFR) - Greece may be looking
into kicking the can into the next century.

One of the options the sovereign is looking at is offering a
100-year bond in return for outstanding short-term debt, said a
banker at one of the institutions advising Greece who said he
saw the plans being studied.

Officials at other banks on the deal would not confirm that
the new option, which envisages a structure similar to Brady
bonds, is being looked at. One said the main focus was still on
the current proposals going ahead without amendments.

However, strong demand for a century bond offered a few
weeks ago by Mexico suggested a similar plan could make sense
for Greece.

"The financing costs of Greece are going to be
horrible, but more importantly such a move avoids default. It's
more about surviving rather than doing what is right from a
long-term financing point of view," said Tim Jagger,
Singapore-based RBS credit strategist.

Credit protection markets are signalling a 94 percent
probability that Greece will default within five years.

Before Greece's second 109 billion-euro bailout was agreed
on July 21, some euro zone officials had urged the country to
try and swap existing debt for bonds with maturities of up to 40
years.

That was amended to a proposal to swap or roll over 135
billion euros, or 90 percent, of outstanding debt maturing
before 2020 into new bonds backed by Triple A issuers with
longer maturities of up to 30 years.

It was expected that the move would deliver an effective 21
percent haircut to the principal value of bonds holdings.
Private-sector bondholders would also be able to participate in
a cash buyback at a steeper discount, now mooted at 50 percent.
Some 20 billion euros was earmarked for this purpose.

The long-duration of a 100-year bond would offer investors a
security that would be less volatile if interest rates rise. But
it would also mean larger swings in nominal face value for
smaller yield moves, a feature that would make a century bond
attractive for hedge funds.

The likely high liquidity of a theoretical 100-year bond
from Greece would also make it desirable.

"It could be a low coupon but massively sub-par bond so you
get the par effect in yield terms. The CDS trades on an upfront
basis and the massively inverted curve indicates distress in the
near term and lower risk for longer-term credit," Jagger said.

A 100-year bond to restructure Greece's debt would have the
advantage of sending a strong signal to the market that Greece's
refinancing problems had been put away for a very long time.

The banker said that the 100-year bond being considered
would be structured like the Brady bonds used to rescue a number
of Latin American countries which defaulted on commercial bank
loans in the 1980s.

Most of the bonds that resulted from the Brady plan had a
30-year tenor and were partly backed by U.S. Treasury bonds. The
Brady plan generated over $160 billion in bonds, which made
these securities highly liquid.

While this is just another option being studied, bankers
believe the current plan is the preferred path. Bondholders were
invited to tell their domestic regulators whether they planned
to accept the currently tabled exchange offer by September 9.

The Greek finance ministry has not released the results of
this exercise but banking sources close to the situation have
indicated that investors holding only 70 percent of the
identified bonds had definitely said they would participate.
Greece has reserved the right not to proceed unless 90 percent
of bondholders by value accept the offer.

However, one banking source close to situation said the plan
was now likely to proceed under the current terms even if the
90-percent participation rate could not be reached.

The offer is likely to be published in October once the euro
zone authorities, the IMF and the ECB have decided whether to
disburse the next tranche of the original bailout and all 17
euro zone parliaments have ratified the enhancements to the EFSF
rescue fund.

Finland backed the changes on Wednesday, and Germany
followed suit on Thursday. The last to vote, Slovakia, is not
due to give its verdict until mid-October.
(Christopher Langner, Chris Spink; Additional reporting by
Umesh Desai; editing by Amy Resnick, Alex Chambers and Neil
Fullick)

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